Why is That Ad Following Me Around on the Internet?

Forbes has a piece on Why Wall Street Likes LinkedIn More Than Facebook. The difference in how well the two companies monetize user interest is quite significant.

And when it comes to making money, LinkedIn packs a much harder punch than Facebook. LinkedIn manages to rake in $1.30 per user hour spent on the site, while Facebook scrapes by with a measly 6.2 cents per user hour.

The article’s explanation of this gap is that professional data is more important to enterprises than personal data to consumer advertisers. But I don’t know if it is just about that. Somewhere in there lurks a question begging to be asked? Does Facebook monetize user attention as effectively as it could?

Take me. I use Facebook regularly. Not a whole bunch, but I will check in a couple of times a week, mostly over the weekend. Here are the typical ads that I see.

I can link each ad back to something in my profile. I live in the Bay Area, am liberal, married and male. Is this kind of broad-brush targeting the best Facebook can do?

The ads are uniformly unmotivating. They are shown repeatedly. As if there was a very limited stock of ads to show and they had to show half a dozen on every page. So sorry, but we will subject you to the same insipid ads over and over again.

You might point out that I’m not a typical Facebook user. I share a little but not a whole lot of information. I never use my Facebook login on 3rd party sites. So FB doesn’t have much to work with.

But that wouldn’t be true. FB has a ton of personal data for me – my social graph, my status updates. If it still serves up ads that don’t result in any action, is it a wonder that their monetization is at 6.2 cents per user hour?

In contrast look at Google advertising. Comparing Google search advertising with FB advertising is perhaps not fair. Search clearly declares intent which makes targeting much easier. Display ads will find it tough to compete with that.

But Gmail ads are perhaps as close as it gets contextually, to FB. I find Gmail ads to be very relevant. Google’s algorithms are clearly analyzing my email content to determine which ads to serve up. FB isn’t doing that with status updates.

Users want to see ads that are better targeted. I am interested in seeing relevant ads. And advertisers want to reach interested users. The right economic model (a la AdWords) and some clever computer algorithms should get you there. It can’t be that difficult if you have Facebook’s resources. So I wonder why it’s taking them so long to get this right.

Twitter too is trying hard to get their advertising model right. Promoted tweets in my timeline show up from time to time. They are using the social graph cleverly and I find many of their promoted tweets relevant. I spend a lot more time on Twitter than I do on FB, so I do hope they find a non-intrusive but successful advertising model.

Meanwhile, an ad for a certain watch has been following me around wherever I go on the internet. It so happened that a couple of months ago I clicked on an ad for the watch. I then went and read a whole bunch of reviews and so on and then actually bought the watch. But now, the ad networks think that since I clicked on the watch ad, I am interested in it. So now I am bombarded by the same ad everywhere. All wasted advertising since I’ve already bought the watch. And very annoying.

So now I have done two things. Both of them are detrimental to the ad networks’ and the advertiser’s interests.

One, I opted out of all interest based advertising. They don’t make it very easy for me to do that, but I patiently went to all the websites and opted out.

Two, I will never click on a display ad again. If it interests me, I will google it and get to its website through search.

I am positive that I am not the only person who is doing this. Some may want to but don’t know how or don’t have the patience to. But many will opt out. Soon there’ll be a video on YouTube on “How to Stop That Ad Following You Around on the Internet”. And then the game’s over.

The Trouble With Powerpoint

Wrong tool, right idea

A couple of weeks ago, I was walking someone through a Powerpoint deck on the phone. The discussion was going well. But every now and then she would skip ahead. I’d be on slide 12 expounding some gory detail of our actions in Q1 and she would say “I have a comment to make about XYZ on slide 14″. Just a little unsettling.

So I thought about it. I had sent the deck to her the previous evening. It had a lot of detail – stacks of bullets and in places, full sentences. I wanted her to be able to understand the slide deck by reading it without my voice over. She did exactly that, and then the next day, I subjected her to my voice over anyway. No wonder she was skipping slides.

The number one problem with how Powerpoint is used in companies is that the same deck is used for different purposes. And it doesn’t work. Dual-use powerpoint decks are the single most important reason why the powerpoint slides used in stand-up presentations are so terrible.

IT Services companies are the worst perpetrators of the dual-use crime. We make illustrations with lots of boxes and arrows and inscrutable terms and acronyms. We put them in proposals. Then we take the same illustration and slap it onto a slide. In all its 14 point font glory. During the presentation we will actually turn towards the screen and read the whole thing out. Or sometimes you’ll hear “I won’t take you through all this information, but…”. Well then, why put it on the slide?

Dual-use crimes occur in other ways too. At Infosys, with globally dispersed teams across vastly different time zones, it is very common to exchange powerpoint files with the expectation that the other party will read the powerpoint and understand its contents. A typical email might read “Please find attached a deck that explains XYZ. Let me know if you have any questions.” You open the deck and it’s the same boxes-arrows style of presentation. Sometimes its useful because you already have the background and this is incremental information. At other times, you don’t understand a thing, or even why it was sent to you.

When you want someone to understand a document without a voice over, an email or Word document might work better. Because unlike a few paragraphs of a long email, a Powerpoint slide with boxes and arrows has no narrative thread.

I hand-wrote my transparencies at b-school, at my first job and even for my interview for Infosys in 1994. When Powerpoint was introduced, or rather when I was introduced to it, I thought it was an amazing invention. It completely changed the process of preparing for a presentation. The text on the slides was crisp, clear without having to send the slides to be done by an agency. Editing was so much easier. You could make changes right to the last minute before the presentation. You could draw diagrams and mix them with text easily. Later, we got fancy looking transitions too.

Powerpoint radically changed the overhead presentation. But somewhere along the line, it took over all forms of communication within business. The long form of writing just went away. I don’t know if we are unique at Infosys, but I don’t see much use of MS Word. It is all Powerpoint or Excel.

Dual-use is not the only reason why Powerpoint is overused and misused. The truth is that Powerpoint has become a crutch for the overworked modern-day employee. Its use makes it acceptable to not write full sentences, paragraphs or in fact, have a narrative at all.

As a consultant Powerpoint comes in handy in other ways too. If you aren’t sure about how a client will respond to some parts of the proposal why spell it out in detail. A brief bullet in the deck allows you wiggle room that you use based upon the body language of the client in the meeting.

Consultants also regularly create too many slides and too many words on each slide. This is a universal phenomenon. Why this is so, is not clear to me. It’s as if they are OK with any outcome in the meeting including the client passing out from sheer boredom. But god forbid, they should ever be accused of not working their butts off on the presentation.

Engineers are of course far worse at this than consultants. Most of us receive an education that equips us to solve problems, not communicate the solution to someone else. The engineering school I went to put a high premium on getting the funda (fundamental principle). Explaining how you figured it out was just wasn’t our thing.

Then we join a company where we see consultants flinging out decks with 50 fancy box-and-arrow slides. And we say, we can do that too. Thereafter all slides have boxes, arrows and 14 point text. And of course, tons of jargon and acronyms, because we engineers love them. It makes us look smart. All our formative years have been spent yearning for those small shots of dopamine to the pleasure center of the brain, when I get something that you don’t. Or when I say something that forces the listener to ask, “What does that mean?”. Now suddenly, you’re asking me to communicate simply. That just fries my circuits.

And of course it is also well known that most engineers are color blind. So our 50 box-and-arrow slides in 14 point text display all colors of the rainbow. The final product can be quite awesome to behold. Something that can kill a domestic pet at 20 paces. Clients are advised to wear protective eyewear.

In Indian IT Services companies I believe this is now a crisis. Not just the use of Powerpoint but all of business communication. And with the SMS generation now getting into mainstream business communication, the future doesn’t look too gr8 either.

ET Article

This article was published in the Economic Times on Apr 20, 2012.

Four Myths About the Indian IT-BPO Industry

From zero to over $50 billion in 20 years. That’s been the meteoric rise of the Indian IT-BPO industry. For an industry of such significance, to India and the world, it is not very well understood outside the industry. Perhaps because it doesn’t manufacture a physical product. Or perhaps because it is such a new industry. After all, 20 years isn’t very old as industries go. The automotive industry is about 120 years old. Even the mobile phone industry, at about 30 years old, is older.

Whatever the reason, there exist a number of myths about the industry. Here are a few that deserve to be busted.

Myth #1: The industry is doomed because wages are rising rapidly and the labor arbitrage is going to go away.

This myth implies that labor arbitrage—the difference between the wages in India and advanced countries like the US—is the only thing propping up the Indian IT-BPO industry.

In 2009 the average US IT worker’s annual income was $77,200 in 2009 (Source: Janco Associates) versus $ 12,100 for an Indian IT worker (Source: ZDNet). That is a pretty big gap. Since then wages in India have grown, no doubt, but the rupee has also fallen against the dollar, mitigating the wage increase to a large extent.

Just to give you an idea of how big that gap is, assume that the US IT worker’s salary will remain constant. Also assume that the Indian IT worker’s salary in dollars will increase by 10% every year. It would take almost 20 years for the gap to be closed.

Of course, it is wrong to assume that wages in the US will stagnate and wages in India will keep rising interminably. Wage increases in the labour market, like any other market, are driven by demand and supply of IT workers. As the galloping growth in the Indian industry settles down to a steady trot and as private engineering colleges increase the supply of engineers and other IT workers, the acute shortage of workers may become a thing of the past.

Myth #2: China/Vietnam/Philippines is going to usurp India’s services throne.

As India becomes more expensive, are other countries going to undercut us and gain market share?

For sure, India is no longer the only act in town. The Philippines, particularly, has done quite well predominantly in voice-based BPO services. In 2010 it did $7.2 billion in IT-BPO services, which was 4.5% of the country’s GDP. The same number for India was 3.7%.

That said, The Philippines and Vietnam are relatively small countries, smaller than the single Indian state of West Bengal. They don’t have the scale to threaten India’s preeminence in the industry.

China has the scale. And its government would love to get the higher wage IT services jobs. But India has some inherent advantages—the most important one being a higher education system that is largely English-based. And it has a more subtle advantage in how comfortable clients feel with level of IP protection in India as compared to China.

Myth #3: Indian IT companies are no good because they don’t make products.

Actually they do. My company, Infosys, has a core banking product—a classic licensed software product—that does quite well. But, in the larger scheme of things, it is true that there is no Indian IT company that derives significant revenue from products.

I don’t think this bothers most companies. They have a solid business model —high growth and profitable. Why should they get distracted with what is really a different business? The enterprise software business requires entirely different skills, not just in product management and engineering, but also in executive row.

The financial model for enterprise software requires big upfront investments in product, sales and marketing. IT Services is not a high capital intensity business. The two don’t mix very well, which is why you will rarely find both business models in equal measure in the same company. IBM is an exception to this rule, but then IBM Software runs like an independent company and has the scale to be successful by itself.

While salvation for the Indian IT industry may not lie in building a licensed software business, that doesn’t mean that it should just stick to ‘work for hire,’ where all IP is created for and retained by the client. There are opportunities where retained code or other IP go into Solutions or Platforms which allow the service provider to differentiate itself and increase average bill rates.

Myth #4: There is no innovation. Indian software companies just keep flogging the offshore model.

In the 90s the offshore model itself was new. Before 1990, the SDLC (software development life cycle) was never broken up and allocated to people in different time zones. (Well, almost never. Texas Instruments was an early innovator in this area that we mention in our book.)

Today, an SDLC that spans many time zones is commonplace. But in the early 90s the pioneers of the offshore delivery model were breaking new ground. They were innovating.

Today, the offshore delivery model is embedded in many enterprise services. Every new service that is offshored has its own challenges and requires its own innovation. Startups like iYogi (consumer tech support) and Indegene (marketing services for pharma companies) are successful because they brought innovative approaches to offshore new services.

That said, in core enterprise IT services, the offshore model is showing its age. All service providers offer offshore application development and support or SAP implementation services in an offshore delivery model. Given how much of the revenue comes from these core services, they cannot afford to have them commoditized.

Innovation and owned IP is the only way to stave off the dark forces of commoditization. Indian service providers are investing in buying or building IP and capabilities to address big business problems from digital marketing to managing closed book annuity operations.

Rules and Rituals


Matt Richtel investigates the mystery of why laptops and not iPads need to be pulled out of bags for the X-Ray machine at airport security.

From the New York Times

What’s the distinction between the devices? Similar shapes, many similar functions, the tablet is thinner but not by much. Is the iPad a lower security risk? What about the punier laptop-like gadgets, the netbooks and ultrabooks? What about my smartphone?

Richtel contacts the TSA and security experts, but doesn’t really get a good answer. The TSA said that it had its reasons but declined to share them saying that “the agency didn’t want to betray any secrets.” Another security expert called it “security theater”, implying that making passengers go through some inconvenience makes it look like the government is taking their security seriously!

The problem of course is that electronic devices come in all sizes. Rules are best applied to clearly defined categories. Categorization of devices based upon size is just not practical. There has to be an easy way for TSA and passenger to unambiguously agree on the categorization that then leads to the application of the rule “the device comes outside the bag for the X-Ray machine”.

Is it a laptop? (Y/N) is an easy way to categorize. Is it more than 1 cubic foot? (Y/N) will just not work.

The real world presents a lot of ‘continuous functions’. Sometimes you have rules based upon categories like single/married or male/female that are clearly defined (more in some states than in other). But most of the time you categorize by drawing a line on the graph of a continuously varying function like age. You can vote when you are 18. You can drink when you are 21 etc.

What is the right age at which you can vote? Actually age may not have much to do with it. Education, mental maturity may have more to do with it. But those are harder to measure or indisputably agree on. So age is the best proxy.

The voting age does differ from country to country, so obviously there isn’t one right answer. But once it is in place, a rule like the voting age, just digs itself in. It becomes very difficult to change. Status quo itself has inertia. Additionally, there may be vested interests that are pushing at it from both sides. It becomes very difficult to change. Greece’s early retirement age, for instance (55).

Rules like clean categories. If the real world presents continuous functions, rule makers chop up the continuous function to create clean categories. Once these categories are created, they are very difficult to change.

There is another property of rules. You can always add more. They are very much like things carved in stone. You can’t erase them, but you can always add more.

It’s tax season here in the US. The US tax code is a labyrinth of rules and loopholes and rules to close loopholes that is impossible to deal with. Everyone agrees that it is far too complex. But somehow law makers keep adding more deductions, more rules to the tax code.

The most interesting thing about rules is how they eventually become rituals. Rules endure, and outlive the rule makers. On the way, generations of rule makers keep adding more rules, but they never take anything away. One day the rule makers no longer know why the rules exist. But they keep enforcing them. They have become the priests and the rules, rituals.

Here’s a Zen story that hits home

When the spiritual teacher and his disciples began their evening meditation, the cat who lived in the monastery made such noise that it distracted them. So the teacher ordered that the cat be tied up during the evening practice. Years later, when the teacher died, the cat continued to be tied up during the meditation session. And when the cat eventually died, another cat was brought to the monastery and tied up. Centuries later, learned descendants of the spiritual teacher wrote scholarly treatises about the religious significance of tying up a cat for meditation practice.

I recently met the CIO of a leading news media company. He said that over time their Marketing department had added so many “special offers” for their newspaper that they now had 1200 of them in their system. Nobody really understood all of them. But they were afraid to remove them. Why change something that wasn’t broken? Apparently there was a rogue link in some forum which gave readers a free 3 month trial period even if they were current subscribers! But that was a small price to pay.

Businesses, especially big business, has its share of rules and rituals. Some of it is necessary. Some of it isn’t. The cost to business from unnecessary rules is enormous. It slows down progress. It gets in the way of much needed change. It saps the energy of people. They end up spending so much of their passion attacking and defending rules and justifying exceptions, which could be used constructively.

The only way to keep business agile is to constantly subject its rules to the sunlight of logic. Why do we have this rule in place? Did we make this rule when the conditions were different from what they are today? Do we completely understand the costs of this rule and have we weighed them against the benefits? Does anyone even remember why we have this rule?

Like zero based budgeting, we should be talking about zero-based rules.

Why This is Emphatically Not the End of India’s IT Services Story

Fred Giron at Forrester has a provocatively titled post out Is This The End Of India’s IT Services Success Story?

Thankfully it is not the end. Once you get past the title, Giron’s post itself does not point to a doomsday. And I doubt that his eventual research note on this subject will either. Mostly because it just isn’t true.

Giron describes the impact of IP based Solutions on the industry as ‘transformational’ and even ‘disruptive’. I think we can safely say that it will not disrupt the industry. At least not in the new-business-model-hollows-out-old-business-model sense that Clayton Christensen used the word.

I don’t even think that it will be very transformational.

The composition of revenue in the IT Services industry changes slowly. While the frontier along which value is created and companies compete, shifts quickly, the bulk of the revenue will still come from a set of slowly commoditizing services. IP-based Solutions will form that frontier but there will be other services there as well. And while the action will be thick on the frontier, requiring new skills and capabilities, back in the heartland, it will be business as usual.

What that means is that even though there may be great value created by IP based Solutions it will take a long, long time before it has any effect, if at all, on the growth rates or employment generation by the industry.

In our book we take a pretty close look at the challenges faced by the Indian IT Services industry from commoditizing services and rising client expectations and do some prognostication of our own.

In a chapter called “The Quest for Higher Bill Rates” we closely examine the different ways a Solution can create value for the clients and the service provider. Also, what does it take for a service provider to be successful at selling Solutions.

In another chapter “New New Thing” we take a look at the trends in Enterprise IT – Cloud, Big Data among others – and their impact on the industry, both negative and positive.

The central problem to solve for the industry is how to stave off commoditization. The solution to this problem, in one word, is Innovation. Sometimes innovation will come in the form of IP-based Solutions. Sometimes it will be in the form of a new Service, say marketing services for pharmaceutical companies. And sometimes it may be a new way to serve a certain market (Japan, anyone?)

Everything’s a Game

I recently crossed a 100 miles per gallon with my Chevy Volt. For those of you who live in “advanced” societies that follow the metric system, that would be 42.5 km per liter.

If you fell out of your chair at that number, that’s probably because you don’t know that the Chevy Volt is an electric car with a back up gasoline engine. A full charge takes me about 30 miles after which it switches to the petrol engine. So if I keep driving on my battery, the mileage keeps improving.

I crossed a 100mpg after some effort. I charge the car using a standard 110V outlet which takes 10 hours for a full charge. Which means that I have to remember to plug it in at night, otherwise the next day I’ll be driving on gasoline. I now regularly forget to charge my iPad, but almost never, my Volt.

So when I crossed 100 mpg, I was naturally quite thrilled about it. I posted this tweet

To which I got some responses that were humbling. Like this one

After which I joined voltstats.net and kept at it. My mileage is now 104mpg.

Why would I spend any time pushing my mileage up? And then joining a website with a bunch of people who are similarly engaged? I get nothing out of the deal. Yes, there is some satisfaction on doing my bit to save the planet, but anything over 17mpg (my previous car) would have been an improvement. Why go for a 100?

This behavior, that would make no sense to economists, is driven by what is called gamification. Apparently we are all wired to play games.

There’s a lot of action around gamification of the enterprise. SAP is investing in this area. Salesforce.com bought a company Rypple that uses gamification to improve employee performance.

Outside of the enterprise Stackoverflow uses badges and so on to reward certain activity. My daughter does Math exercises on Khan Academy, which awards badges after you win a certain number of points. It certainly keeps her going without much complaint. We offered her a reward for every 10,000 points. But she has never claimed it. Achievement is its own reward?!

But I wonder if the psychology at work here is the same thing that makes us play silly games, board games and basketball? Does that capture what is going on here?

I think there is something else at work here. If you can measure something and if you can influence it, that something automatically becomes a challenge, a contest. Is it the overachiever in you that compels you to better your best score (or someone else’s)? Or is it your playful, game loving side? Perhaps they are all at work here – play, achievement, competition – just in varying proportions for different people.

Whatever it is, we will see more and more of it in our companies. For a game to be successful, the measurement of outcomes should be largely driven by game play not by random or extraneous circumstances. As life gets more digitized, such opportunities will keep popping up.

Ten years ago, you could never have had a contest on how many friends you had. Now I can say that I have more Facebook friends than you.

Strange Name Discrimination

Researchers have found that the easier it is to pronounce your name, the better your chances of getting promoted.

From The Telegraph

The team of American and Australian scientists concluded that the easier a person’s name was to say, the better their success was in the workplace and the quicker they were promoted.

In a fiver year old post I drew the very same conclusions. From My Secret Starbucks Name

All things being equal, in Sales, you can be under a major handicap if the client is unsure about how your name is pronounced. A guy I know had the following email signature – Niraj (knee-rudge) Sharma. He was a top Sales rep at Infosys. Others have to take even stronger measures. There was a guy I had some business dealings with in New York, whose parents, in an inspired moment nearly half a century back in India, had named him Bhuleshwar Gandhi. In New York, when he wisely decided to change his name, he decided to not succumb to sentimental half-measures – he changed his name to Bill Grandee. I suspect that was a turning point in his career.

The research studied the effect of last names. In my opinion, first names matter more because you need to use them over and over again.

The average Indian first name is tough to pronounce in western markets. If you contrast Indian first names with typical American first names there are key differences in design and intent. American names are short and the nick names are shorter. The nick name for every first name is pretty standard. David is Dave. Timothy is Tim. Robert is Bob or Rob. American first names are designed for an easy “user interface”.

Indian Hindu names, on the other hand, are designed to be unique and beautiful. When parents name their children they want other parents to ask them the question “What a beautiful name, what does it mean?”

Also, the Hindu names are always in Sanskrit – the language of the gods. It is as if, it doesn’t matter if mortals can’t pronounce it, as long as the gods can.

By the time my daughter was born, I had a keen appreciation of the value of a short, familiar name. My wife and I named her Lori, which is a familiar American name. It also happens to be a Hindi word that means lullaby. In Sanskrit lullaby would be Alolika. Which is a non-starter. She would have been called Aloo by all, which means potato.

But even with her name, we couldn’t resist the temptation of an honest-to-goodness Sanskrit name. So we snuck in a middle name, which she will probably shorten to an initial all her life.

In this new world that is fast globalising, my advice to Indian parents is to please be kind to your children and name them with simpler two syllable names.

Is Simplicity a Winning Strategy?

If such an award existed, Ron Johnson would be a Hall of Famer retailer. He was instrumental in making Apple Stores what they are today – the biggest sales per sq ft of retail space and a wake up call for the rest of the retail industry. Now he is the CEO at J C Penney and he’s shaking things up there.

Mr. Johnson is currently meeting the media, rolling out his new strategy for J C Penney (the video interview is worth watching). There’s a new brand identity, a major redesign of stores which will now be organized around stores-within-stores for major brands. But the thing that struck me as particularly bold and perhaps risky was a fundamental change in pricing strategy.

J C Penney is moving to what they call “Fair and Square” pricing. There will no longer be the deep discount sales that its customers have come to expect.

Why are they doing this? In Mr. Johnson’s words

Pricing is actually a pretty simple and straight forward thing. Customers will not pay literally a penny more than the true value of the product. And as I have been watching the department stores for the past decade, I have been struck by the extraordinary amount of promotional activity, which to me, didn’t feel like it was appropriate for a department store. My instinct was that it wasn’t a good thing.

Last year J C Penney had 590 sales events. A whopping 72% of their sales came from merchandise discounted at least 50%.

From this, they are moving to where there will be only three kinds of prices – Everyday, Month-long Value (back to school type sales) and Best Prices (clearance).

This is a pretty gutsy move.

An HBR blog post is down on the timing of this strategy and thinks Penney should wait for when its new brand and stores vision has been fulfilled.

Quite simply, J.C. Penney lacks the differentiation to make this pricing strategy successful. J.C. Penney’s products are fairly homogenous. When selling a relatively undifferentiated product, the only lever to generate higher sales is discounts. Even worse, if competitors drop prices on comparable products, J.C. Penney’s hands are tied — it is a sitting duck that can’t respond.

In my opinion the new pricing strategy is an inherent part of the new J C Penney strategy and can’t be disassociated from the store makeover and the new brand identity.

Undoubtedly this is a risky gambit. But is it the right strategy? At the heart of it, the new pricing strategy is about simplicity.

Customers like simple, stable pricing. A busy housewife would love to be able to do her shopping at the Penney store near her place of work on weekdays, instead of fighting for parking space at the mall near her home on the weekend when the sales are on. When she is in the store, she can confidently buy any product with the assurance that its price isn’t going to be halved the next sale.

There is another aspect to simple pricing that Penney won’t be able to control and that is to ensure that prices on merchandise are the same everywhere. Apple does this very well on their products. When I buy from Apple online or in an Apple store, I am pretty certain that I don’t need to do any comparison shopping on the internet.

Customers like simple pricing. But they also like low prices. We don’t know where Penney’s prices will end up, but if 72% of merchandise is sold at 50% or more off full price, we can safely say that there is a lot of headroom below full price. Will that be enough to keep their customers or not is the key question. How they withstand the pressure of weekend sales from competing department stores must be giving sleepless nights to Penney executives.

After years of weekend sales, customers now expect them. They expect to see those flyers in their mailboxes with astonishingly low prices. How will Penney pull in the customers? Local marketing will probably have to completely change.

Besides the fact that customers like simple pricing, there are other benefits to having a simple pricing strategy. Highly volatile prices create highly volatile demand. Volatile demand creates its own set of problems. From store work force scheduling to inventory management. High volatility in demand results in either stock outs or higher inventory costs or both.

The fact is that simplicity in product and pricing results in simpler business operations.

Take Southwest Airlines for instance. From an earlier post The Virtue of Simplicity

Southwest Airlines is a company that I truly admire. The genius of SouthwestAirlines is in how they have become the most important airlines in the US by simplifying it for their passengers and for themselves. In the morass of complexity that is the American airlines industry, Southwest Airlines is a shining beacon of hope. Not only is their pricing dead simple, everything about the airlines is that way. They fly only Boeing 737s. This simplifies, crew scheduling, training, aircraft maintenance and spares. They have only one class – coach class. There is no seat assignment. It’s first come first serve [Update: This has changed but in a uniquely Southwest fashion]. And their frequent flier program is a tribute to simplicity – 8 round trips and you get a free roundtrip to anywhere they fly.

I hope J C Penney is successful with ‘Fair and Square’. Taking a leaf out of the book of their neighbor in Dallas – Southwest Airlines – might be just what the retailer needs.

And then we shall hope that this might inspire banks, telcos and cable companies to adopt simpler pricing strategies. And pigs will fly.

Offshore: The Book is Out

My book on the offshore services industry, co-authored with Gaurav Rastogi, is now out in both print and Kindle versions.

In India a print version of the book, published by Penguin, is available in major bookstores and online at Flipkart. In India the book is called Offshore: How India got back on the Global Business Map.

Outside India the Kindle version of the same book, but with a different sub-title, is available from the Kindle website. Offshore: India’s Services Juggernaut

The Facebook page for the book can be found here.

Aadhaar Under Attack for Specious Reasons

A parliamentary committee is about to reject the National Identification Authority of India Bill of 2010. Here is an article from The Hindu about it. Here is my post from a few months ago on the UID project.

The success of Aadhaar is important for India. Very important. It is a foundational pillar for nation-building (as in Aadhaar) . And it is really, really disheartening to see it being attacked and brought down.

The reasons for the opposition to the bill in the Parliamentary Committee per The Hindu article are,

Sources in the Committee say the Bill has been rejected in its current form on the grounds of the project’s high cost, as well as concerns regarding national security, privacy and duplication of the National Population Register’s (NPR) activities. One major sticking point was reportedly the Aadhaar project’s ambition to enrol every “resident” of the country, rather than every “citizen.”

A common misperception is that Aadhaar is linked to an entitlement program. It is easy to understand why there is this misperception. Today any entitlement program – PDS (ration card) or a passport – has the identification and entitlement program tied together. Sometimes, one entitlement program might use the identification from another entitlement program (a ration card can be used for many purposes other than getting rations at a Fair Price Shop), but there is no stand-alone identification program.

Aadhaar is a stand-alone identification program. It does not come with an entitlement program. It simply links a number/name/father’s name/address with biometric identifiers [Update: It is actually number/name/date of birth/address]. Every entitlement program comes with a set of qualifiers (PDS for BPL, passport for citizens…).

What qualifies someone for a government entitlement program can vary quite a bit. Aadhar cannot and should not duplicate a verification system for all these qualifiers. But once someone is qualified say by the PDS to receive a ration card, if the UID number is linked to the ration card, every time the beneficiary wants to get subsidized rice from a PDS shop, biometric identification is fast and infallible.

With that background let’s examine each of the reasons for opposing the bill.

Inclusion of “residents” as opposed to “citizens”

The people who raise this as a problem must be under the impression that the UID number by itself confers some benefit. But it doesn’t. Let’s say the Secretary in charge of PDS thinks that only citizens should get the benefit of subsidized rice and an illegal immigrant from Bangladesh should not. Perhaps he thinks that by giving a UID number to the Bangladeshi immigrant we are enabling him to “take advantage” of the PDS.

We are not. Whatever verification procedures are used by the PDS today to distinguish between an illegal immigrant and a real citizen should stay in place. The UID could be an additional layer of verification (you do have to show some government ID to get the UID) but it cannot and should not replace what PDS has in place. However, once the beneficiary’s qualifications have been verified by PDS, his UID is linked to his eligibility for subsidized rice. He uses biometric identification to get his rice.

The same logic applies to getting a passport or anything that is a benefit for citizens but not for residents.

But then you might ask, why not just have Aadhaar cover citizens and not residents. Here are two good reasons why:

- Residents may not have entitlements. But remember this is not just about entitlements from the government. There are KYC requirements for opening a bank account where UID can help. And non-citizen residents can also open accounts.
– To distinguish between a citizen and a resident is not an easy process. It is best done by other departments, like the Home Ministry. It would greatly slow down Aadhaar if they had to do it.

Issues related to privacy of those who have been assigned a UID number

Aadhaar has been designed to give answer’s to questions like “Is this man whose thumb is on the scanner, Ram Mohan?” It replies in yes or no. It does not answer questions like what is the name and address of a man whose UID number is 12345…

This is as good as it gets from a privacy standpoint. Now that doesn’t mean that it will be foolproof. Nothing is. After all there is a database somewhere where names and addresses and UID numbers are stored. But isn’t that true about any database anywhere in the world? If you want to live in the modern world and one day become a first world country you are going to have your biometric identification somewhere.

Home Minister P. Chidambaram has also raised issues about security weaknesses in Aadhaar. “The possibility of creating fake identity profiles is real” he writes. I can’t see how that would happen given that the biometric data has to belong to a real person and it can’t be someone who is already in the database.

Perhaps he means that non-citizens can get a UID number and that shouldn’t be allowed. As I have argued above, it is not UIDAI’s responsibility to qualify people for citizenship. The Home Ministry should continue using the methods they use today like police verification for passports.

The problem in tackling objections related to privacy or security is that the person who is in charge of security or privacy has to just think of scenarios where your system will break. An honest discussion about the probability of the event and it’s downside risk is never really possible if the people objecting have an agenda. And you can be sure that most people who are opposing Aadhaar have an agenda.

Duplication of work being done for National Population Register

I haven’t paid it much attention, but my guess is that the National Population Register is a program for identification plus it also classifies people into citizens and non-citizens. Why can’t the National Population Register use Aadhaar as its ID infrastructure? Or if it provides better ID infrastructure let’s do a “dare to compare” and pick the better one.

Aadhaar is not just a superior technical solution. It’s implementation is designed to be scalable at low cost. Which is why they have been making such rapid progress. It helps that Nandan Nilekani ran a multi billion dollar company tech company before he volunteered to do this. He knows how to do this. And he has just a single point agenda – he is in a position to do some good for the country and he is taking that chance. Try doing something like this with a politician at the helm.

The massive expenditure that the project entails

If you have a big country, it takes a lot of money. I have seen some estimates that the cost of enrolling the whole country the investment is just over $3B. Compare that with the cost of subsidies on food, fertilizer and petroleum at over $29B per annum. Some say that the leakages in just the PDS system are 85% out of a total budget of $12B. You do the math. And that is just the savings in one entitlement program.

The truth is that these questions about Aadhaar are not being posed by people who want India to have an identification system that brings us into the 21st century. I don’t know what their agendas are. But I do know that if 85% of PDS subsidies are leaked through corruption, the numbers are large enough that there will be powerful forces ranged against anything like Aadhaar that threatens the destroy the gravy train. I also know that a program with a $7B budget is big enough that people will want a piece of the action. And if they can’t get it, the next best thing is to bring the whole thing down.

If I can’t get mine, nobody can. India be damned.